By Sabela Ojea

Online education company Chegg said it's conducting a business review and exploring alternatives such as selling the company or taking it private as it continues to lose subscribers to artificial intelligence-enabled rivals.

The Santa Clara, Calif., company on Monday said that it hired Goldman Sachs as its financial adviser for its strategic review, and that it filed a complaint in federal court against Google and its parent company Alphabet for having allegedly blocked traffic from coming to Chegg.

"These two actions are connected, as we would not need to review strategic alternatives if Google hadn't launched AI Overviews, or AIO, retaining traffic that historically had come to Chegg, materially impacting our acquisitions, revenue, and employees," Chief Executive Nathan Schultz said.

The company's stock dropped 23% to $1.21 in after-hours trading. Through the market close shares have fallen 82% in the past 12 months.

Chegg and other virtual learning companies have ceded ground to generative AI companies such as ChatGPT, which provides free alternatives to the homework help that Chegg charges $19.95 for to its subscribers. Although Chegg built its own AI products, the company has faced scores of canceled subscriptions.

The business review comes as it swings to a loss in the fourth quarter with revenue falling 24%, and guided for lower-than-expected revenue for the first quarter. In November, Chegg said it would cut its workforce by an additional 21%.

The company reported a loss of $6.13 million, or 6 cents a share, from a profit of $9.67 million, or 9 cents a share, for the same period a year earlier.

Stripping out one-time items, earnings per share came in at 17 cents. Analysts polled by FactSet had forecast adjusted earnings of 18 cents.

Revenue fell 24% to $143.5 million, beating the $142.1 million expected by Wall Street. The company had most recently guided for quarterly revenue of $141 million to $143 million.

Subscription-services revenue fell 23% to $128.5 million, as Chegg's number of subscribers declined 21% to 3.6 million from the same period a year earlier.

For the first quarter, Chegg expects revenue between $114 million and $116 million due to what the company called a notable decline in traffic and subscriber acquisitions. Wall Street expects first-quarter revenue of $138 million, according to FactSet.

Chegg rival Coursera has also been hurt by the educational shift, with its stock falling 50% in the past year. Meanwhile, virtual education competitors such as Duolingo, who have made big bets on AI, have seen their stock price more than double in the same period.

Write to Sabela Ojea at sabela.ojea@wsj.com; @sabelaojeaguix

(END) Dow Jones Newswires

February 24, 2025 18:14 ET (23:14 GMT)

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